Accrual Basis – under accrual basis, income is recognized when it is earned, regardless of when cash is received and expenses are recognized when incurred, regardless of when cash... Accrual Basis – under accrual basis, income is recognized when it is earned, regardless of when cash is received and expenses are recognized when incurred, regardless of when cash is paid. Conservatism or Prudence Principle - this principle states that given two options in the valuation of the business transactions, the amount recorded should be the lower rather than the higher value. Economic Entity Assumption – the activities of a business are recorded separately from the activities of the owner(s) of the business. Full Disclosure Principle - amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Going Concern or Continuity Assumption – assumption that an enterprise has the ability to continue for an indefinite period. Historical Cost Principle - requires companies to account and report based on acquisition costs or item was originally obtained rather than fair market value for most assets and liabilities. Matching Principle – income is computed by deducting expenses incurred from the profit, income should be matched against the expenses. Materiality Principle - used by an accountant to decide if something is significant enough to warrant action or reporting. Monetary Unit Assumption – Financial reports of the business should be expressed in terms of uniform means of measurement such as Philippine peso. Objectivity Principle - it requires business transactions to have some form of impartial supporting evidence or documentation. Revenue Recognition Principle - revenues must be recognized when earned. Revenues are earned in the accounting period when the services are rendered or goods sold are delivered. Time Period Assumption – Financial information must be made available to users over a series of shorter time periods like annually, semi-annually, quarterly or monthly.
Understand the Problem
The text is listing and explaining various accounting principles and concepts, including Accrual Basis, Conservatism Principle, Economic Entity Assumption, and others. This is a clear enumeration of basic accounting principles.
Answer
Accrual basis accounting recognizes income when earned and expenses when incurred, regardless of cash flow.
The accrual basis of accounting recognizes income when it is earned and expenses when they are incurred, not necessarily when cash is received or paid. This allows for more accurate financial reporting. It contrasts with cash basis accounting.
Answer for screen readers
The accrual basis of accounting recognizes income when it is earned and expenses when they are incurred, not necessarily when cash is received or paid. This allows for more accurate financial reporting. It contrasts with cash basis accounting.
More Information
Accrual accounting gives a more accurate picture of a company's financial position by matching income and expenses to the period they relate to, rather than when cash transactions occur.
Tips
A common mistake is confusing accrual basis accounting with cash basis accounting. Accrual basis provides a more complete view of a company's financial health as it captures all earned revenues and incurred expenses.
Sources
- What Is Accrual Accounting, and How Does It Work? - Investopedia - investopedia.com
- Accrual Basis Accounting - A Concept In Financial Accounting - Aurora - auroratrainingadvantage.com
AI-generated content may contain errors. Please verify critical information
